Mortgage rates reached record lows for 30-year fixed-rate home loans, 15-year fixed-rate home loans and for a 5/1 adjustable rate mortgage last week and homeowners jumped at the opportunity to refinance.
Applications for a mortgage refinance increased 9.4 percent during the week ending February 3, 2012 compared with the previous week, according to the Mortgage Bankers Association (MBA) in their weekly Mortgage Applications Survey. The refinance share of all mortgage applications rose to 80.5 percent last week and adjustable rate mortgages (ARMs) rose to six percent of all home loan applications.
According to HSH.com, the average rate for a 30-year fixed-rate home loan last week was 4.18 percent and the average rate for a 15-year fixed-rate home loan dipped to 3.46 percent, both record lows for the HSH survey. While ARM applications are a small part of the mortgage loan market, the average interest rate on a 5/1 ARM dipped below three percent to 2.99 percent. That low rate may entice you if you know you will sell your home or pay off the balance within three years.
Cash-in refinancing gains popularity
Homeowners with low equity who want to refinance as well as those homeowners who want to accelerate their loan pay-off date increasingly opt to bring cash to the settlement to reduce their loan balance. Some borrowers also pay down their balance in order to avoid paying private mortgage insurance, a requirement for homeowners with less than 20 percent equity. According to Freddie Mac?s fourth quarter 2011 refinance analysis, 49 percent of refinancing homeowners chose to reduce their principal balance, the highest percentage of borrowers to do so in the 26-year history of the analysis.
Between 1985 and 2010, cash-out borrowers who took out some of their home equity to pay off bills, make home improvements or make other purchases represented 46 percent of the market. During the fourth quarter of 2011, cash-out refinances dipped to 15 percent, the lowest number in the history of the analysis.
These two facts show how much the real estate market has changed in recent years. Not only have home values dropped, which has eroded home equity, but homeowners are willing to pay down their balance in order to take advantage of extremely low mortgage rates.
If you are considering a home refinance but have low equity, you may want to discuss the option of a cash-in refinance.
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Tags: Mortgage Rates, Rates, Record Low
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